Gold, silver, pgms, mining and geopolitical comment and news

U.S. Mint

The U.S. Mint is on track for the lowest sales of American Eagle coins in almost a decade. The 2008 financial crisis began a historic ramp up in sales that lasted for years. 20,583,000 silver American Eagles sold that year, more than double the 2007 total of 9,028,036 coins.

In all but one year thereafter the Mint set a new record. Sales peaked in 2015 at 47,000,000 Silver Eagle coins – 5 times the number sold before the world discovered just how rickety the global financial system actually is.

Memories are short, however, and investor complacency is setting in.

Sales to date in 2017 are just short of 16 million coins and are set to finish the year very close to the 2008 totals.

U.S. Mint sales are viewed as a proxy for bullion sales in the broader market. There isn’t much else available in the way of published data. However, Mint statistics don’t tell the whole story.

While retail buying activity is still stronger than retail selling, we’ve seen a meaningful increase in customer selling of coins, rounds, and bars over the past year. A lot of the American Eagles traded today are therefore resale coins which don’t show up in the Mint’s reporting of new minting activity.

Government Mint Bureaucrats Don’t Respond to Market Conditions

Private mints and refiners are responding to weaker sales by lowering premiums on rounds and bars. The government bureaucrats which run the sovereign mints, including the U.S. Mint, largely ignore these competitive forces. To date, they have not adjusted pricing.

Demand for government-minted products therefore suffers the most as buyers take advantage of significant premium discounts available in other products and secondary market items.

While retail bullion demand in the U.S. is certainly weaker overall, it is way better than the Mint’s statistics might imply. In a sense, the bullion markets are more balanced. National dealers like Money Metals Exchange make more of a two-way market, both buying from and selling to clients.

That is good news for buyers. The days when new production Silver Eagles were strictly allocated and supply fell hopelessly short of demand are behind us, at least for now. Investors can get those coins for around $2.50 over melt value, instead of paying up to $6.00 and waiting for delivery – which has been the case on a few occasions over the past 5-7 years.

Any buyer who doesn’t have to have a sovereign coin will find plenty of other silver products with premiums under a buck – such as rounds and bars. Gold premiums and availability are also improved.

Premiums could go even lower if retail demand does not increase despite the renewed bull market in precious metals that began in late 2015.

Much will depend on spot prices. Many people are impatient with the seemingly gradual rise in gold and silver prices off the 2015 bottom. If prices accelerate upwards, investors will finally start believing in the new bull market.

Perhaps an even bigger variable is the atmosphere of complacency in the markets and how much longer that will persist. Our view is that virtually all markets are severely underpricing risk. More investors should be buying safe-haven assets rather than selling.

It is hard to reconcile the world we find ourselves in today with record stock market prices, at least not without the artificial forces of central bank stimulus in massive amounts and algorithmic trading. Those forces are formidable, to be sure. But how much longer can bankers (both central and Wall Street) forestall the ultimate reckoning for all of their excesses?

Investors asking the same question should take advantage of the buyer’s market in metals while it lasts.

*About the Author:

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

In a down week for most markets, silver fared the best, falling only 0.11 percent. There was no particular story supporting the move, but note that silver really didn’t fully participate in the precious metal rally last week and perhaps had less to lose.

Over the past five days investors bought 26.8 metric tonnes of bullion through exchange-traded products backed by the metal, according to Bloomberg, the most since January 2015 as seen in the chart below. In addition, Reuters says gold and silver demand is off the charts; the U.S. Mint sold nearly as much gold on the first day of 2016 as in all of January 2015, with silver sales equally as astounding.

HSBC believes that gold has “shrugged off” two bearish developments, a strong dollar and weaker commodity prices, announcing that they remain bullish on the precious metal. The group sees good emerging market demand, eventual dollar declines and central bank accumulation helping gold this year. As reported by Bloomberg, the FTSE/JSE Africa Gold Mining Index, which rallied 20 percent this year, has had the best start since 1995.

Weaknesses

Platinum faced the worst losses this week with a 5.75 percent price decline. Price action seemed to track the falling equity markets but in countries like South Africa and Russia, which have had falling local currencies, the incentive to continue producing remains attractive.

Rubicon Minerals is having a rough start to the year, tumbling nearly 80 percent for the week, after a revised new resource estimate showed a significant decrease in metric tons and ounces compared to a 2013 report. Similarly, Royal Gold extended its drop (24.5 percent for the week) after an update on its Phoenix Gold Project, and Eldorado Gold tumbled 29.85 percent due to “Greek mining woes,” as reported by Bloomberg.

The controversial Pebble Mine project, a proposed gold mine near Alaska’s Bristol Bay, was deemed an environmental risk by the Environmental Protection Agency which is moving toward a formal decision to bar mining operations there. The EPA, however, was questioned on its “misuse of authority,” according to the Washington Post, and now the group’s internal watchdog has announced there is “no evidence of bias in the agency’s efforts.” Critics who have followed the EPA’s review process noted that the EPA investigator did not consider a significant body of publicly available information brought to light by the Congressional Science Committee that demonstrates clear instances of bias and predetermination.

Opportunities

Evercore ISI took a look at sectors they believe are candidates for being “exalted” in 2016, meaning those that have underperformed over the past several years, but could now perform in excess of their index. Of these “exalted” industries, gold makes the list. Jeremy Wrathall of Investec is quoted this week in Mineweb reinforcing ISI’s annual rotation picks, stating “we will see a very different mining industry in 12 months’ time…those who haven’t got debt will reshape the industry.”

In its Technical Outlook 2016, UBS writes that the seven-year cycle in equities is rolling over and now it’s time to “buy gold.” The group warns investors not to be surprised by “record spikes in volatility over the next 12 to 17 months.” Adding to UBS’ rhetoric, U.S. Treasury Secretary Lawrence Summers is quoted in Bloomberg this week saying that “risks are substantially tilted to the downside,” when it comes to global commodity and stock markets.

Jeffrey Gundlach, CEO of DoubleLine Capital and one of the first to predict the oil price crash in 2014, thinks that gold could surge this year. Gundlach believes that as investors look for safe haven assets in a volatile market, the precious metal could “soon climb” 30 percent higher from its current price, according to an article on StreetTalk.

Threats

Gold demand in India could take a hit this year as farmers are likely to reduce buying on account of a poor crop production this season, according to a CommodityOnline article. This could also mean that gold demand will see a dent during wedding season. Experts predict a 10 to 15 percent dip in purchases this year.

According to Pranabesh Ray of the Xavier School of Management (during a conference on e-waste this week), 50 pounds of gold and 20,000 pounds of copper could be extracted from one million discarded cell phones if processed properly. “E-waste,” which comprises precious metals like gold and silver, can produce more gold than what is obtained through mining, according to a Bloomberg article recapping the conference.

Bullion may drop to around $995 per ounce in the fourth quarter, according to Societe General’s Asia Head of Commodities Research Mark Keenan. During a Bloomberg TV interview this week Keenan reminded viewers that SoGen has been bearish on gold for some time.